What will it take to implement real time payments/NPP?

This is part 2 of the 3 part series on the New Payments Platform (NPP). Subscribe via email or get added to Google Circles to receive an update on future posts. 

The focus of the New Payments Platform is to provide an infrastructure for a versatile and data rich, real time payments infrastructure for low value everyday payments. But few organisations understand the challenges in the implementation of real time payments system, so, I attempt to uncover the key considerations - functional and technical for the program. NPP will also facilitate an enhanced customer experience through the introduction of an Addressing Service which will allow payments (particularly mobile payments) to be “addressed” or “routed” by using an Alias which will enable payments to be directed to a specific account using either a mobile phone number or an email address. The email account option will be particularly important to businesses and people with multiple accounts. 

The introduction of the NPP will create many opportunities for participating financial institutions (ADIs) as well as their customers through provision of overlay or value-added services, particularly if the introduction of the NPP is viewed as more that a “simple” compliance exercise. There are some important considerations ADIs need to meet to be ready for NPP.

Functional Considerations

There are a number of key requirements to be considered as a consequence of the introduction of the NPP.

1. Message standardization, transformation and acknowledgment into a format compatible with the central message format. The rigor associated with payment enrichment and repair for incomplete or missing information will be much higher with NPP. Even the clearing process with acknowledgement of messages between gateway/clearing house/bank, including handling and integration of settlement messages needs to be robust.
2. Payments reversal – For rejected payments, given the real time nature of clearing & settlement, the reversal and transaction research and reconciliation process will need to be drastically streamlined. Impact on payments and GL balances for unhappy path situations will be extensive and the resultant changes will need to be comprehensive.
3. Payment routing – based on least cost and load balancing of the payment processing access to an alternate option and gateway will need to be automatic, instantaneous and dynamic.
4. Audit trail of transactions along with journalizing – Tracing the payment transactions through various platforms, interfaces will be extremely critical in not only ensuring compliance but also for AML/CTF purposes. The provision of a single comprehensive view of payments and hence, the ability to do a drill down of transactions and fees will be a critical feature and differentiator.
5. Liquidity management and settlement will, given the real-time nature of the NPP, need to be examined closely to ensure that from a participant and participant customer perspective a very clear real-time understanding of their position at any point in time. This will also need to include the ESA position for Participants, particularly when acting on behalf of other participants.
6. Comprehensive configuration, fee management and reporting will need to be NPP specific and will be critical to ensuring accurate product pricing can occur and correct cost allocation can be done. Fee and Billing – at a minimum, the break-up of the charges by product/customer/segment/account/channel.

Architectural Considerations

There are a number of architectural implications that need to be considered as a consequence of introduction of the NPP.

• What aspects of payments enrichment, scheduling and monitoring should stay in the channel or product systems and what should be centralized? This will particularly have an impact around recurring and future-dated payments and consideration should be given to a centralized data store which would facilitate processing as well providing both the Participant and its customers with a complete view of upcoming payments, it will also help facilitate liquidity management.
• What non-functional requirements should the Participant build towards? Having a clear and unambiguous understanding the payments flow becomes even more critical with the NPP as it will run 24*7 and its availability (or lack thereof) will have high visibility not only with the participant’s customers but also with regulatory authorities and other Government agencies. This requires a good understanding of expected volumes, response and repair times within and outside the enterprise boundary.
• Business Activity Monitoring capability – abstraction of the processing and idle times for various sub-segments of the business process; real-time payments dashboard and reporting; real-time fraud monitoring will significantly improve an ADI’s ability to meet and exceed their customers’ expectations as well as providing a firm baseline of performance across the payment systems of the ADI..
• Supporting Rich Data through a centralized payments data store to facilitate comprehensive reporting and transactional research as well as providing a foundation for enhanced reconciliation capabilities across product and channel streams.
• Real-time Fraud monitoring will be an essential component of any NPP implementation particularly due to the non-reputable nature of NPP payments once the payment is complete. AML capabilities will also need to be considered, again due to the finality of the payment.
•  Rich remittance data that will be present in NPP transactions will need additional consideration as it will create the potential need to interface new internal and external systems by allowing ADIs to introduce new value-added products and services particularly aimed at small-to-medium enterprises thus improving customer acquisition and retention as well as introducing new income streams through fee-for-service offerings.
  Some of these considerations would involve ADIs to progressively revamp their payments systems infrastructure necessary for them to guarantee higher levels of stability.
  Are you ready for it?